ViacomCBS: The Paramount Global Shift From Value To Growth

Chris Hondros/Getty Images News Q4 2021 Market Reaction In One Picture

Well, the market made a very clear statement about what it thought of the ViacomCBS Q4 results , soon to be Paramount Global ( VIAC ). Data by YCharts The price collapsed. In fact, it fell off the proverbial cliff. Investors lost about 18% in one day. And, year to date, investors are now down about 38%. What’s The Bad News?

There isn’t exactly one clear problem. However, let’s start with Non-GAAP EPS, which came in at $0.26, but missed expectations by $0.19 .

Of course, that’s a huge miss. When analysts are off but such a large margin, it means that expectations have been violated. The market isn’t seeing what it had anticipated. In this environment, that’s not well tolerated.

Digging deeper, we see that diluted GAAP EPS was $3.05 for Q4 2021. That’s substantially higher than the $1.26 GAAP EPS from Q4 2020, although those numbers aren’t really comparable due to the pandemic, and other factors.

Soon, I’ll talk about growth. For now, realize that VIAC was punished in light of greatly increased costs. Here’s a glimpse into that inflating balloon : Now, of course, our growth depends on delivering killer content. Last year, we told you we expected streaming content expense to exceed $5 billion in 2024. This included $4 billion of expense associated with our direct-to-consumer services. We now expect D2C content expense to grow from $2.2 billion last year to over $6 billion in 2024. And, this will not be pretty over the course of 2022. For example : As we grow, direct-to-consumer will see additional investments in content and international launches. As such, we anticipate an increase in OIBDA losses of approximately $500 million for the D2C segments in 2022. Here’s an easy picture to see how these expenses looked in 2020 versus 2021: VIAC 2020 and 2021 Expenses (Seeking Alpha) Analysts also poured gasoline on the fire. For example, Jessica Reif Ehrlich thinks that VIAC is now a less attractive M&A target . Furthermore, the potential VIAC success story will take too long to play out : Ehrlich said Viacom’s subscribers have outperformed expectations, and should be strong in 2022, but the long-term margin guidance for its direct-to-consumer business will not be achieved until later this decade, while its legacy business sees more pressure in the years ahead. Please just keep in mind that Jessica Reif Ehrlich is keen on Discovery Communications ( DISCA ), and she does seem to have pull. In early January, she gave love to DISCA . The result? Investors reacted, with the company’s shares soaring by more than 17%… In any event, we must all remember that analysts do have sway with institutional investors, and large pools of money . There’s not necessarily a direct cause and effect, but there’s little doubt in my mind that the BOA analyst downgrade was a strongly negative catalyst for VIAC. How About Growth?

There is a lot to like about VIAC’s recent report but only if you’re interested in the shift to streaming, and “DTC” direct-to-consumer. I’ll come back to this soon enough. For now, here are some raw numbers for Q4 2021 : Revenue of $8B (+16.4% Y/Y)

Global Streaming Subscribers Up to 56.1M (+9.4M from Q3 2021)

Global Pluto TV MAUs Up to 64.4M (+10.0M from Q3 2021)

Global Streaming Revenue Up to $1.3B (Up +48% from Q4 2020)

Ad Revenue +1% to $2.6B (Q4 2020 to Q4 2021)

Affiliate Revenue +2% to $2.11B (Q4 2020 to Q4 2021)

There are actually more numbers but the big picture is that VIAC is enjoying stability in the several areas, and strong growth in the areas that matter more. The streaming growth is impressive, albeit at a high cost for content.

Here’s a simple picture, where they toot the horn of success: VIAC 2021 Streaming Growth (VIAC Q4 2021 INVESTOR EARNINGS CALL) To be perfectly clear, more content is now available to subscribers. They are more active on the platform. And, monthly churn is down. All systems go . More Numbers, Please

This might seem like an odd turn, but stick with me. Data by YCharts Book Value keeps going up. I’m seeing deep roots of value, and with the added investments in content, investors are ultimately building getting equity . That content can be exploited again and again. Roughly speaking, VIAC’s book value appears to be at least $32-33 right now.

VIAC ended the year with $6.3B cash on the balance sheet. In […]

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